Understanding Expanded Subsidies for COBRA Coverage

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) expanding COVID-19 relief efforts. Under this new law, the federal government is covering 100% of the cost of qualifying COBRA coverage from April 1, 2021 through September 30, 2021. The subsidy provisions also include new notice requirements for employer groups and COBRA administrators.

The American Rescue Plan Act COBRA subsidy:

• Applies to all health plans subject to Federal COBRA; includes fully-insured and self- funded plans; includes dental and vision plans. Flexible spending accounts
  are not included.
• Applies to comparable state continuation of coverage programs such as Cal-COBRA.
• Is effective as of April 1, 2021, and plan sponsors or their COBRA administrators must
  notify eligible individuals by May 31, 2021.
• Establishes a refundable payroll tax credit for employers and plan sponsors to recover
  eligible subsidy premiums paid
  • For periods of Federal COBRA, the person to whom premiums are payable is
    generally the plan sponsor for most fully insured and self-funded employer plans.
  • For periods of state continuation coverage (such as Cal-COBRA), the person to
    whom premiums are payable is generally the insurer.
• Includes the option (not a requirement) for employers to allow COBRA plan enrollees to select a different plan option offered by the plan sponsor that is of equal or lesser premium cost

Employers and their COBRA administrators need to act quickly to ensure timely compliance and avoid penalties. Here are a few key actions:

• Monitor guidance from the Department of Labor (DOL) and IRS for further developments and clarifications
• Download and review model notices and requirements from DOL (published 4/7/2021).
• Decide whether to adopt the alternative coverage election feature.
• Update existing COBRA notices to include the required information.
• Begin identifying individuals who qualify for the subsidy and their last known address.
• Prepare payroll systems to recapture the subsidy via allowed payroll credit.
• Prepare enrollment materials.
• Refund any COBRA premiums paid by assistance-eligible individuals for qualifying
  coverage months within 60 days.
• Groups under 20 employees your carrier is the administrator of COBRA/Cal-COBRA, and
  they will notify all subsidy-eligible individuals and provide them with enrollment information.

Contact your COBRA administrator, consultant, or broker if you have questions regarding the ARPA COBRA premium subsidy or click here for guidance from the Department of Labor.

Eligibility

Qualified individuals are limited to those who qualify for COBRA coverage due to the loss of employer-sponsored health coverage that resulted from an employee’s involuntarily termination or reduction in hours (including both the employee and any dependents), and are:

• Current COBRA participants, or;
• Individuals who are still within their eligible coverage period, based on the original
  qualifying event / date – even if not currently enrolled.

COBRA subsidy is not available to individuals who:

• are eligible for COBRA due to an employee’s voluntary resignation, or;
• are eligible for coverage through a new employer or Medicare, or;
• exhausted their maximum COBRA continuation coverage period

Eligibility dates and maximum duration of COBRA eligibility is determined by the original qualifying event and date. Subsidy eligibility does not extend or alter the original maximum period of COBRA eligibility.

Examples of COBRA / Cal-COBRA eligibility exceeding 18-month eligibility window include:

• Small Groups (2-19) – up to 36 months of Cal-COBRA coverage
• Small Groups (20+) / Large Groups – Federal COBRA beyond 18 months, with qualifying
  extension
• Small Groups (20+) / Large Groups – up to 18 months of Cal-COBRA extension beyond
  Federal COBRA

COBRA Subsidy Eligibility Examples:

• Individual was laid off in March 2020.
  • Original COBRA start date: 4/1/2020
  • COBRA expiration date: 9/30/2021
  • Subsidy eligibility: 4/1/2021 – 9/30/2021
• Individual was laid off in January 2020.
  • Original COBRA start date: 2/1/2020
  • COBRA expiration date: 7/31/2021
  • Subsidy eligibility: 4/1/2021 – 7/31/2021
• Individual is laid off in May 2021.
  • Original COBRA start date: 6/1/2020
  • COBRA expiration date: 12/31/2022
  • Subsidy eligibility: 6/1/2021 – 9/30/2021

Get more information

• Department of Labor ARPA COBRA FAQs

Department of Labor sample notification letters:

• DOL released the following ARPA COBRA notice templates on April 7,
  2021: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium- subsidy
• Model General Notice and COBRA Continuation Coverage Election Notice: PDF
• Model Notice in Connection with Extended Election Period: PDF
• Model Alternative Notice: PDF
• Model Notice of Expiration of Premium Assistance: PDF
• Summary of COBRA Premium Assistance Provisions under the American Rescue Plan
  Act of 2021: PDF (Enclosure)
• Groups under 20 employees your carrier is the administrator of COBRA/Cal-COBRA,
  they will notify all subsidy-eligible individuals and provide them with enrollment information.

*The new American Rescue Plan Act is subject to further rulemaking from the federal government, Department of Managed Health Care (DMHC) and Covered California.

Really Great Employee Benefits, a division of Heffernan Insurance Brokers, is committed to helping you and your clients stay updated as information gets released. Please continue to check back for updates.

Source: Blue Shield of CA